Technology is the answer
Citadel Securities, the market-making firm, generates $3.5 Bio. The Ken Griffin firm outpaced similar non-banks and is also catching up to highly successful Wall Street Rivals.
Citadel Securities may be even more lucrative than Griffin’s hedge fund because of reports that profit margins will exceed 30%. His wealth, long estimated at about $10.3 billion, based largely on his investments in, and ownership of, the hedge fund business, is $5.1 billion higher, according to new calculations by the Bloomberg Billionaires Index.
Citadel Securities is an award-winning global market maker across a broad array of fixed income and equity products. The unique set of capabilities and tools are designed to drive down the cost of transactions, helping to meet the liquidity needs of asset managers, banks, broker-dealers, hedge funds, government agencies, and public pension programs. They strive to provide the most efficient execution and the highest caliber of services, making markets more fair and accessible for all, taken from Citadel Securities website.
Eight years ago, Citadel Securities was beginning to look like a failed experiment by Griffin as he looked for opportunities caused by the financial crisis. The newly developed firm was a full-service investment bank that would compete with Wall Street by offering research, underwriting and mergers-and-acquisitions advice. However, this was ended two years ago as dozens of employees were dismissed and the firm focused on electronic trading.
It began as a high frequency market-maker in options before moving into equities. According to Bloomberg, it handles more than 1 of every 5 shares traded in the U.S.
Technology has fueled the rise of nonbank market-makers, according to Larry Tabb, founder of Tabb Group LLC. Their smaller size and highly targeted business models make it easier to respond to changes and improve technology.
In 2016, Citadel gained a presence on the floor of the New York Stock Exchange by acquiring a division of KCG Holdings Inc. it’s now the largest market-maker, winning mandates from Uber Technologies Inc., Spotify Technology SA and Virgin Galactic Holdings Inc. The firm could be in line for more lucrative assignments as startups bypass traditional public offerings for so-called direct listings.
Bloomberg referred to Citadels Securities as a “Money Machine” due to its rising revenue and ability to muscle banks out of markets they once dominated. The success came from a focused mission on technology.
Employees also have investments in the hedge fund, so they benefit when the funds perform well. A memorandum tied to a recent bond offering shows that about 20% of Citadel LP’s $32.2 billion of assets under management come from principals and employees. Griffin has about $5.4 billion invested in Citadel funds, according to the Bloomberg Billionaires Index.
For now, those investments are thriving. The flagship Wellington Fund posted returns of 13% in 2017 and 9.1% in 2018, and is up 16.7% through the first 11 months of this year. That performance stands out in a challenging environment for hedge funds. As seen by the recent news of several hedge funds struggling.
The securities business continues to expand rapidly and is now vying to become one of the Fed’s primary dealers.
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